Normally a company able to achieve growth in its business/ profit via a few type of capital models.
1st, this type of companies possess pricing power, it able to generate more revenue by increase selling price, thus increase its profit. This type of companies do not required additional capital to grow its business. All the profits are able to return to shareholder. This is a fanta-bulous business.
2nd, this type of companies using its or part of its profit to grow its capacity. Some are able to grow by only retain less than half of its profit, excess cash will return to shareholder. Some are required by regulator to retain part of profit as business grow bigger, like bank. However there are some need to retain most of its cash flow just to expand business.
3rd, this type of companies using cash generated by its operation to buy other business. To them it is merely a capital game.
4th, this type of companies have to take debt or using using debt to grow their business. To them doing business, it is better to use other people money instead of own money. However excessive debt is showing more trouble ahead. The bigger a company grow, debt will escalating higher.
These are the reason how a company paying out dividend. Some investors are very happy because they are able to buy a growth company, however they are without consider the above. They told others that how their company able to grow year after year, especially when its share prices rally.
To me what is a big deal that a company that able to grow by taking debt and more debt.
Kossan Treasury Share
3 years ago